What will become of the pound? What about the rest of the UK? Who will the North Sea oil go to? There hasn't been secession yet, but doubts and hypotheses about the economic fate that awaits Great Britain are multiplying. On 18 September the Scots will have to choose via referendum whether or not to remain under the aegis of London. If the cause of independence prevails, scenarios still unexplored within the European Union will open up.
The hypothesis of the rift on British soil has taken shape in recent weeks. Sunday, for the first time, one poll gave the secessionists the lead, albeit narrowly (51 to 49%, according to calculations by YouGov for the Sunday Times). Obviously, the games are by no means closed, also because – considering the margin of statistical error – what we are facing today is a virtual draw. The uncertainty alone, however, is enough to sound the alarm sirens in England, especially after the unionist front squandered an apparently unbridgeable advantage (about 22 percentage points) in just one month.
Also on Sunday, the British Minister of Finance, George Osborne, promised the transfer of greater autonomy to Scotland in the event of a rejection of the referendum: "In the coming days - he announced - an action plan will arrive which will grant greater powers over taxes, spending and welfare”. Then, however, a warning: "If Scotland opts for independence - thundered Osborne -, under no circumstances will it be able to use the pound".
THE STERLING
The minister thus raised a crucial question, that of the currency. In times of the referendum campaign it is understandable that Osborne tries to scare his opponents, but the hypothesis of replacing the pound with a new Scottish currency is not the only one, nor perhaps the most likely one.
According to Alex Salmond, prime minister in the Edinburgh Parliament and leader of the splinter party SNP (Scottish National Party), independent Scotland will continue to use the pound. There are two possible paths: the creation of a sort of "Sterlinzone" in imitation of the Eurozone, or the adoption of the British currency informally, on a par with what happens in Kosovo with the euro and in Panama with the dollar.
However, there would be two obstacles to overcome: in the first case, London's opposition to the currency area based on sterling, in the second, the foreseeable flight of Scottish banks, which would move to English soil to continue exploiting the Bank of England as a lender last resort.
On the other hand, the alternatives are not endless. The first is the adoption of the euro, not disdained by the SNP, which however would imply a much more invasive control system than the English one and would first of all require entry into the EU, far from immediate; the second is the creation of a Scottish central bank to issue a new currency. It would certainly be a very weak currency and subject to speculation, unless pegged to the pound. Furthermore, the "Scottish pound" would help revive ailing Scottish exports, but it would damage purchasing power and public finances.
PUBLIC ACCOUNTS
Perhaps even more complex than the currency chapter is precisely that which concerns the budget of any new State. The central issue is the distribution of public debt. According to calculations by the English National Institute of Economic and Social Research (Niesr), the Scottish debt, on a census basis, would fluctuate between 121 and 143 billion pounds, equal to a percentage between 73 and 86% of GDP. Moreover, after the division, the rest of the United Kingdom would see its debt-to-GDP ratio rise from the current 90,6% to between 94 and 101%.
Even on this front, however, litigation would be inevitable. The SNP has already threatened the central government: if there is no monetary union, Edinburgh will refuse to take on its share of the debt (the British Treasury, to reassure the markets, has pledged to guarantee the entire debt in the phase transition to independence). Furthermore, during the negotiations, London could recall how in the past Scotland has received transfers from the central state which have contributed not a little to increasing the British debt. Edinburgh, for its part, could demand that its share of the debt be deducted from the taxes that the United Kingdom has collected on the extraction of Scottish oil.
NORTH SEA OIL
Thus we arrive at one of the most sensitive points of the eventual secession: the ownership of the oil fields in the North Sea. Still according to the calculations of the Niesr, independent Scotland should be entitled to about 91% of the turnover produced by the sale of oil, because most of the resources are found in its territorial waters. On the other hand, once again the question would give way to endless negotiations, if only because so far most of the investments in wells and platforms have come from the British government or from the giant British Petroleum.
It is also necessary to bear in mind the problem of profitability: in recent years, in fact, the trend in the price of black gold and some unforeseen closures have caused the revenues produced by Scottish oil to sink. From 12,4 billion pounds in 2008-2009, it went to 6,5 billion in 2012-2013. A figure destined to fall further: in the most optimistic of forecasts, according to the Office of Budget Responsibility, in 2017-18 the turnover should settle at 3,5 billion pounds, or less than half of the 7,3 expected by the SNP for the same period.
PENSIONS AND HEALTHCARE
Nor can we overlook the two problems that according to The Economist would be at the top of the list of issues to be resolved for an Edinburgh separate from London: pensions and health care. The social security front is the most worrying, since – by virtue of the constant flow of young Scots who emigrate to England to find work – in the next few years the ratio between active and retired people will decrease in Scotland, while it will increase in England. As for health, a study published by the OECD places the Scottish quality of life among the bottom three in Europe, just think that in cities like Glasgow the average life expectancy does not exceed 69 years.
For health care and pensions, so far, most of the Scottish bill has been paid from London. Where will the money come from in the event of secession? Salmond talks about setting up a sovereign wealth fund which – fueled by oil revenues – invests in the financial markets, taking the Norwegian experience as a model. The secessionists also argue that Scotland can still extract oil and gas for 1.500 billion pounds and that the tax revenues linked to the black gold will guarantee 57 billion between now and 2018. Numbers which however, according to some experts, are largely overestimated.
In general terms, several economists point out that Scottish public spending today exceeds the tax revenues produced. the new independent government should therefore begin the history of the new country with two unwelcome measures: cuts in public spending and tax increases.
WHAT THE UNITED KINGDOM LOSES
In the event of secession, the rest of the United Kingdom - in addition to losing a third of its territory and a tenth of its inhabitants - will pay a more political than economic price. The eventual loss of Scotland would risk questioning the British seat in the G7 as well as that in the UN Security Council. Furthermore, without Scottish voters, it is almost certain that the separatists will win the 2017 referendum on remaining in the European Union. Meanwhile, Wales and Northern Ireland can be expected to try to follow in Edinburgh's footsteps.
THE REACTION OF THE MARKETS
As for the markets, so far, the prospect of Scottish secession has not caused real collapses on share prices. Rather, the pound ended up in the sights of investors, which weakened significantly in recent sessions. The exchange rate with the euro rose to its highest level since June, at 0,8017 (ie it takes 0,8017 pounds to buy one euro), while at the beginning of September it was at 0,79.
For Kit Juckes, forex strategist of Société Générale, if Scotland votes in favor of independence the British currency could devalue by another 5%. “The pound has come under significant pressure and is unlikely to find relief in the next couple of weeks,” adds Sam Tuck, strategist at Anz Bank –. Now we need to understand the technical details of a possible division that seems very probable. It is clear that even if this referendum fails, the question will not be closed”.
Of a different opinion Kevin Daly, economist of Goldman Sachs and author of a report on the Scottish case: “A positive vote for independence remains unlikely. If we see a surprise yes victory, the short-term consequences for the Scottish economy, and for that of the UK more generally, could be disastrous.” The fears revolve above all around a possible monetary union between independent Scotland and the rest of the country, which could lead to a "sale of Scottish assets". The union of the pound "could lead to a European-style monetary crisis within the United Kingdom", the consequences of which would be "incalculable", concludes Daly.
Even according to analysts of Credit Suisse, despite the results of the polls, the probability that the yes vote will win does not exceed 25%. The Swiss broker's analysts believe that, in the event of secession, Scottish export companies (such as Diageo and Pernod Ricard) could have some advantages, while banks such as Rbs, Lloyds and Tsb would be penalised.
